Government layoffs slow cities' recoveries

The skyline of downtown Austin, Texas, November 5, 2009.

WASHINGTON (Reuters) - The layoffs of thousands of government workers may threaten the already slow-motion economic recovery in many U.S. metropolitan areas, according to a report released on Wednesday by the Brookings Institution.

"Job growth, though occurring in more metropolitan areas than in the past, was sluggish," the think tank said. "Those that suffered the most, as well as those with the weakest economic recoveries, typically lost government jobs."

Since the recession began in 2007, 19 out of the 20 metropolitan areas with the strongest economies gained government jobs, according to the report which focused on the first quarter of the year. Conversely, 13 of the lowest performing 20 areas lost government jobs.

Looking at the 100 metropolitan areas combined, Brookings said total employment rebounded by 0.8 percent after hitting its low point in the recession. But local government employment fell 1.2 percent and state employment dropped 0.2 percent, "reflecting the impact of reduced local and state revenues."

Political leaders and economists have warned that government layoffs could pose serious obstacles to economic recovery. Brookings noted that state and local employees make up the bulk of the government workforce.

Analysts and investors in the $2.9 trillion municipal bond market are worried that tax revenues have not rebounded enough to make up for this summer's end of the 2009 economic stimulus plan, which included the largest transfer of money from the federal government to the states in U.S. history.

According to a Labor Department report released earlier this month, from May 2010 to May 2011 local governments shed 267,000 jobs and state governments 24,000. Local government employment in May, at 14.165 million jobs, was the lowest since July 2006.

The number could continue to drop.

Analysts and investors in the $2.9 trillion municipal bond market are worried that tax revenues have not rebounded enough to make up for this summer's end of the 2009 economic stimulus plan. The plan included the largest transfer of money from the federal government to the states in U.S. history.

Education and oil and gas also have propped up high-performing metro areas, Brookings said.

Texas dominated as the state with the strongest metropolitan areas. Austin, El Paso, Houston, McAllen, and San Antonio all performed well in the first three months of the year. Florida had the weakest areas, with Cape Coral, Jacksonville, North Port, Palm Bay and Tampa all appearing in the bottom 20 metros.

Altogether, 73 of the 100 largest metropolitan areas had job growth in the first quarter of 2011, which ended in March, Brookings found, compared to only 67 areas in the fourth quarter of 2010. And 20 of those areas gained jobs for four quarters straight.

Still, while employment improved from its lowest point in the recession in 88 of the largest 100 metropolitan areas, a mere dozen of those areas gained back more than half the jobs they lost between their employment peak and their recent lows.

Only McAllen and El Paso "made a complete jobs recovery by the first quarter," Brookings wrote.

(Reporting by Lisa Lambert; Editing by Andrew Hay.)